ABBV Stock: Could AbbVie Inc’s Gamble on Stemcentrx Pay Off?

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Like most people, you probably thought, “What the hell?” when you heard that Facebook Inc (FB) acquired WhatsApp for $19 billion. That was what I thought too.

ABBV: Could Abbvie Inc's Gamble on Stemcentrx Pay Off?And I felt that way again just before the end of April when AbbVie Inc (ABBV) announced that it would acquire another startup, a biotech this time, in deal reportedly in the region of $10.2 billion. That startup is Stemcentrx.

For what it’s worth, this deal belongs on the list of the largest biotech acquisitions in recent times, while also belonging on the list of the top five biggest venture capital-backed sales.

I will attempt to discuss a number of reasons why this deal makes sense for ABBV.

The State of ABBV Stock

ABBV stock is down by about 8.6% over the last year, and a big part of that is the impending patent expiration of it mega-blockbuster drug, Humira. And it’s a worthy reason to a send stock down, considering that it’s the world’s best-selling drug, as well as bringing in a hollering 61% of AbbVie’s total sales.

Humira will lose patent protecting this year and when it does, it’s likely to witness sizeable competition from look-alike drugs — although, ABBV is still projecting sales growth into next year. In any case, though, Humira will eventually lose sales.

So, ABBV is currently working on ways to protect its business from the impending sales drop attributable to Humira’s loss of patent. Last year, ABBV spent about $21 billion to acquire Pharmacyclics to move to a leading position in the hematology cancer space.

The acquisition of Stemcentrx is a move to get treatments into market for solid tumors. Stemcentrx science is deep-rooted in targeting cancer stem cells to stop the propagation of cancer.

The fact that this deal will give ABBV access to Stemcentrx’s small cell lung cancer pipeline (SCLC) candidate, Rova-T, is a good indication that this deal could prove astute in the end.

Rova-T is being developed as a third-line therapy for the treatment of SCLC. One thing you want to note is that SCLC is a hard-to-treat kind of cancer. Unfortunately, the five-year survival rate of patients in the third-line therapy stage of SCLC is about 6%, and there are not many treatments in the market at this stage.

The brilliant thing is that results from clinical studies for Rova-T have been heartening. For instance, in a phase 2 study, 44% of SCLC patients whose conditions are linked to DLL3 — an antibody drug conjugate — responded favorably to Rova-T, while maintaining a non-alarming safety profile.

Yes, there’s still a long way to go for Rova-T, especially considering that nine out of ten cancer drugs fail to see the light of the day.

One other thing offers hope that Rova-T could be big.

The American Society of Clinical Oncology (ASCO) selected Rova-T to be presented as a “best of ASCO.” There are two reasons to appreciate this. First, only 1%, yes ONE percent, of all ASCO presentations are classified as best of ASCO. So this is indicative of a keen interest of the clinical oncology society in Rova-T.

Second, you want to note that stem cell therapy still has a number of controversies surrounding it in the healthcare society. So that the oncology society is interested in Rova-T suggests that Stemcentrx is doing something right.

And even if Rova-T doesn’t make it to the market, ABBV still has a talented oncology team at hand. Because more than anything, it’s the science behind Rova-T, brought about by the team, that interests the clinical oncology society.

So ABBV is bound to make a big move in the oncology space.

Takeaway for AbbVie

While AbbVie might have made a smart move by acquiring Stemcentrx, it’s only a good move in the right direction. It does little to alleviate the risk associated with the potential decrease in sales once Humira loses patent protection.

In other words, I would only keep ABBV stock on my watch list at the moment, rather than buy it.

As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/abbvie-abbv-stock-stemcentrx/.

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